Tag Archives: investment advice

The Great Monetary Expansion

US economyMy Comments: Dozens of emails cross my desk daily, some promoting stuff that is clearly not relevant, many with a narrow focus that is largely self-serving, few of them truly informative. Those that come from Scott Minerd and Guggenheim Partners are usually worth paying attention to. They’re not too long, and they seem to have relevance for many of us. This is one of them.

March 05, 2015 by Scott Minerd, Chairman of Investments and Global Chief Investment Officer, Guggenheim Partners

While winter weather will likely distort first-quarter economic data, accommodative monetary policy around the world means the long-term outlook remains positive.

The European Central Bank will this month begin a program of full-scale quantitative easing to match what the central banks of Japan, the U.K., and the U.S. have been doing for some years now. The People’s Bank of China, by cutting its benchmark deposit and lending interest rates by 25 basis points last Saturday, provided further evidence—if any was needed—that the global economy will remain flush with liquidity for some time to come. The takeaway from this is that the great global monetary expansion is far from over and the outlook for stocks remains positive.

With regard to economic data here in the United States, we are potentially headed toward a period marred by winter distortions. This is nothing new. In the early months of 2014, key economic data points such as housing, retail sales, and even employment were negatively impacted by an extended winter cold snap. When the economy shrank by 2.1 percent in the first quarter of 2014, investors debated the fundamentals of the American economy. Of course, the economic soft patch of early 2014 proved temporary and the economy quickly regained momentum upon the arrival of the spring thaw. If similar factors are now at play, economic activity may be temporarily delayed, but not canceled.

If we do begin to witness a similar softening in economic data over the coming weeks, debate around the fundamentals of the U.S. economy will likely start afresh. Investors may even begin to question the Fed’s appetite for raising rates. However, I believe the underlying economy remains exceptionally strong and investors should not be panicked by seasonal setbacks. Indeed, considering the strength of the U.S. economy and the wave of liquidity emanating from various central banks around the world, the general investment environment should remain attractive.

GOP Lawmaker Hopes To Halt Fiduciary Push

financial freedomMy Comment: This push by the GOP is, in my opinion, more smoke and mirrors from those beholden to the lobbyists from Wall Street. The crux of this issue is that the people who run Wall Street firms do not want their rank and file representatives, the ones who work with people like you and me on a daily basis, to be held to a fiduciary standard.

For those of you who may not understand, a fiduciary standard means that what is said and done by representatives has to be in all respects, in the best interest of those who are clients of those representatives. The push back has been going on for years, and here is another example of how monied interests are more concerned about the welfare of the monied interests than of the general public.

That it “harms thousands of low and middle income Americans’ ability to save and invest for their future” is absolute and utter bullshit. I’m someone who has worked and made a living for the past 40 years, helping low and middle income Americans save and invest for their financial future, not some politician, bought and paid for by Wall Street firms.

Feb 26, 2015 | By Melanie Waddell

Firing back after President Barack Obama endorsed the Department of Labor’s efforts to revise fiduciary rules for retirement plan advice, Rep. Ann Wagner, R-Mo., has reintroduced legislation to require the DOL to wait to repropose its rule until the Securities and Exchange Commission issues its own fiduciary rulemaking.

Wagner’s bill, H.R. 2374, the Retail Investor Protection Act, passed the House last year. But the Senate had “no interest” in taking up the bill and President Obama’s senior advisors threatened that it would be vetoed.

Better Markets and the Consumer Federation of America sent a letter to the full Senate the same day Wagner took action this week, arguing that the DOL rulemaking should be allowed to move forward as the “actual contents” of the DOL rule have not been made public.

Discussion about the DOL rulemaking “has for the most part been based on speculation,” Barbara Roper, director of investor protection for the Consumer Federation, and Dennis Kelleher, president and CEO of Better Markets, said in a letter.

“Much of (the discussion/complaints about the DOL redraft) has been directly contradicted by statements from DOL officials about its expected regulatory approach,” Roper and Kelleher wrote.

In a statement, Wagner said that she is reintroducing her bill because Obama and Sen. Elizabeth Warren, D-Mass., “presented a solution in search of a problem by proposing another massive rulemaking from Washington that will harm thousands of low- and middle-income Americans’ ability to save and invest for their future.”

“This top-down, Washington-centered rulemaking against financial advisors and broker-dealers will harm the very middle-income families that Senator Warren and President Obama claim to protect,” Wagner said. “Americans should be given more freedom to seek sound financial advice without Senator Warren and President Obama’s interference.”

Wagner’s bill says that the SEC would be required to “go first” in issuing its rulemaking under Section 913 of the Dodd Frank Act before the DOL is able to propose a rule that expands the definition of a fiduciary under the Employee Retirement Income Security Act.
But Roper and Kelleher told the Senate that the DOL rule should be “allowed to go forward, so that the public and all stakeholders have an equal opportunity to see the actual content of the rule.” Indeed, they wrote, “as required by law, at the close of the public comment period, DOL will consider all of the comments and input and decide the best course of action consistent with the law.”

By sending the rule to the Office of Management and Budget, DOL is simply starting the process to release the actual proposed rule for public comment, the two wrote.

The OMB review could take several months. Wagner’s bill would also require the SEC to “look into potential issues with a rulemaking establishing a uniform fiduciary standard in regards to investor harm and access to financial products that were not adequately addressed” in the agency’s 2011 study.

The SEC would also be asked under Wagner’s bill to look into “other alternatives outside of a uniform fiduciary standard which could help with issues of investor confusion.”

Wagner’s bill “is an investor protection bill in name only,” according to a statement from the Financial Planning Coalition, which comprises the Certified Financial Planner Board of Standards, the Financial Planning Association and the National Association of Personal Financial Advisors.

The coalition added that it “helped prevent this legislation from becoming law when it was first introduced and continues to oppose it now and in the future,” arguing that it would leave American investors “vulnerable to potential abuses and would substantially impede or even prevent the SEC from proceeding with congressionally authorized fiduciary rulemaking.”

Wagner’s legislation, the coalition stated, “would require the (Securities and Exchange) Commission to consider less adequate and less effective alternatives,” and would also “slow or effectively prohibit the DOL from proceeding with its proposed fiduciary rulemaking for financial professionals who provide investment advice to retirement savers.”

SEC Chairwoman Mary Jo White said last week that she would speak about her position regarding a rule to put brokers under a fiduciary mandate “in the short term,” noting that it remains her priority “to get the Commission in a position to make that decision” on such a rule.

Rate Hike Rally

USA EconomyMy Comments: Interest rates and where they are going is a relatively hot topic. For those of you with savings accounts and Certificates of Deposit know, the returns you get are anemic at best. But if you need to borrow money for whatever reason, low interest rates are good. Since there is an expectation that interest rates will soon rise, people are scurrying to start projects now, before they start upward.

But when the Fed finally triggers an increase in the Fed funds rate, what will happen to the economy? Many thanks to Guggenheim Partners for these insights.

Commentary by Scott Minerd, February 26, 2015

In her testimony before Congress this week, Federal Reserve Chair Janet Yellen was keen to escape the bonds of nuance and innuendo the market attaches to Fed language. Her emphasis was clear—the Fed will raise the federal funds rate when economic data support the move, a decision I foresee taking place during its Sept. 16-17 meeting. In the meantime, the period before the Federal Reserve raises rates is historically a great time to invest.

Over the past six tightening periods since 1980, the S&P 500 has returned 23.5 percent on average in the nine months prior to the first rate increase. Assuming the next tightening cycle begins at the Fed’s meeting in September, the nine-month period this time around began in mid-December. Since that time, the S&P 500 is already up more than 7 percent. Currently, a number of indicators, including my favorite, the New York Stock Exchange Cumulative Advance/Decline Line, show that the stock market is improving and can sustain its upward momentum.

The period prior to a rate hike has also been a favorable environment for corporate credit. High-yield bonds and bank loans have outperformed investment-grade bonds on average by 4.0 percent and 1.6 percent, respectively, in the nine months leading up to the start of the last three tightening cycles. Even after the Fed begins to raise rates, tightening of monetary policy does not necessarily lead to an immediate widening of credit spreads. During four of the last five tightening cycles (1983, 1986, 1994 and 2004), default rates continued to fall for nearly the entire tightening period and ultimately ended lower than they were when the Fed started to tighten. In the past four instances where the Fed began raising rates following an extended period of monetary accommodation, high-yield spreads tightened on three occasions. On average, high-yield spreads tightened for nine months after the first Fed rate hike in a cycle.

All of this, combined with positive historical performance prior to past rate hikes, leads me to believe that a positive environment for U.S. equities and credit will continue between now and the first Fed rate hike. Even after the Fed commences on what I expect will be a slow and steady march of tightening, fundamentals can remain constructive, especially for high yield, for some time.

Economic Data Releases
U.S. Home Sales Slow While Prices Accelerate
• January existing home sales fell 4.9 percent, to an annualized pace of 4.82 million homes, a nine-month low.
• New home sales were largely unchanged in January, ticking down from 482,000 homes to 481,000. Sales in the Northeast region plunged 51.6 percent, likely reflecting poor weather.
• The S&P/Case-Shiller 20-City Home Price Index showed a faster annual growth rate in December, rising to 4.46 percent year-over-year, the first acceleration in over a year.
• The FHFA House Price Index rose 0.8 percent in December, the largest gain since May 2013.
• The Conference Board Consumer Confidence Index fell to 96.4 from 103.8 in February, but remained above 2014 levels despite the decline.
• Durable goods orders beat expectations in January, up 2.8 percent. Nondefense capital goods excluding aircraft rose for the first time since August.
• Initial jobless claims increased by 31,000 for the week ending Feb. 21, to 313,000.
• The Consumer Price Index fell into deflation in January, with prices down 0.1 percent from a year ago. However, core prices were stronger than expected, rising 0.2 percent from December and 1.6 percent year over year.

Continued Improvement in Euro Zone, China PMI Expands
• Economic activity strengthened in the euro zone in February according to the preliminary Purchasing Managers Indexes. Manufacturing ticked up to 51.1 from 51.0, and the services PMI rose to the highest since last July at 53.9.
• Euro zone economic confidence rose to 102.1 in February, the highest since last July.
• Germany’s manufacturing PMI was flat in the February preliminary reading, remaining in expansion at 50.9. The services PMI rose to a five-month high of 55.5.
• Germany’s IFO Business Climate Index inched up in February to 106.8 from 106.7. Expectations rose slightly while the current assessment fell.
• Germany’s GfK Consumer Confidence Index increased from 9.3 to 9.7 in the March survey, the highest since 2005.
• February preliminary PMIs in France were mixed, with manufacturing unexpectedly falling to 47.7 from 49.2 and services jumping to the highest since 2011 at 53.4.
• U.K. retail sales were weaker than expected in January, falling 0.3 percent. Sales excluding autos were down 0.7 percent.
• China’s HSBC manufacturing PMI rose back into expansion in February, up to 50.1 from 49.7.

When Patience Disappears

Interest-rates-1790-2012My Comments: We’ve talked extensively about the likelihood of a market correction, if not a crash, coming in the near future, maybe this year. What many have not talked about are the implications of a rise in interest rates.

This is going to happen, given that they’ve been on a downward trend for twenty plus years and can’t go much lower, if at all. If you want folks like me who manage your money to anticipate these things to avoid chaos and help you make money, you should at least be aware of some of the variables. Here’s an articulate overview.

Commentary by Scott Minerd / February 13, 2015

Advance notice of the timing of a rate hike by the Federal Reserve may hinge on the removal of just one word, warns St. Louis Fed President Bullard.

Market observers keen to anticipate the Federal Reserve’s next move are wise to follow the trail of verbal breadcrumbs laid down by St. Louis Fed President James Bullard, a policymaker I hold in high regard. When Fed policy seems uncertain or even inert, Dr. Bullard’s public statements have historically been a Rosetta stone for deciphering the Fed’s next move.

For example, in July 2010, Bullard wrote in a report ominously titled “Seven Faces of the Peril” that it was evident the Fed’s first round of quantitative easing had not been sufficient to stimulate the economy. In the report, which was widely picked up by the financial press, Bullard warned about the specter of deflation in the U.S. economy, and that the U.S. was “closer to a Japanese-style outcome today than at any time in recent history.”

That summer, months ahead of any Fed decision to proceed with QE2, it was Bullard who began a drumbeat of steady public messages about the necessity of a second round of easing. By August, the Fed was not talking about whether it should implement a new round of QE, but how. In November 2010, the Fed announced its plan to buy $600 billion of Treasury securities by the end of the second quarter of 2011. If you followed Bullard, you were expecting it.

While Bullard is not a voting member of the Federal Open Market Committee this time around, I still view him as an important policy mouthpiece. That is why it was so interesting when he underscored Fed Chair Janet Yellen’s comments at a press conference following the committee’s Dec. 16-17 meeting in an interview with Bloomberg, saying that the disappearance of a specific word—“patient”— from the Fed’s statement may be code that a rate increase will come within the next two FOMC meetings. He reiterated the point in a subsequent speech, saying “I would take [“patient”] out to provide optionality for the following meeting…To have this kind of patient language is probably a little too strong given the way I see the data.” When Bullard, the man who told us months in advance to expect QE2, goes to great length to describe when the Fed will raise rates, I tend to pay attention.

While Bullard says the Fed could raise rates by June or July (and I wouldn’t rule that out), I think the likelihood is closer to September and that the central bank will likely raise rates twice this year. Whenever “lift off” actually occurs, we’ve long been anticipating that this day would come. It is a particularly interesting time for investors to consider increasing fixed-income exposure to high quality, floating-rate asset classes, such as leveraged loans and asset-backed securities. The good news is there is still time to prepare for when the Fed finally runs out of patience.

When Underperforming the S&P 500 Is a Good Thing

InvestMy Comments: I’ve spent time recently with clients talking about our mutual frustration with the performance of their investment portfolios over the past 18 months. They want their accounts to grow aggressively and I want them to grow aggressively, if for no other reason than it makes me look smart.

We can argue that the stock market is overdue for a crash, and that their respective portfolio managers are factoring that into the mix. The idea is to find ways to avoid the downturn since that alone makes it possible to make gains on the inevitable upturn.

Here is a perspective that will give you another way to look at this. I’m told patience is a virtue, but it’s still hard to come by.

Feb 1, 2015 | By Jeff Benjamin

As financial advisers roll through annual client reviews, many will face the task of having to explain how their portfolio strategies so badly lagged the 13.7% gain by the S&P 500 Index last year.

Fact is, a truly diversified investment portfolio should have returned less than 5% in 2014. It was that kind of year. Any adviser who generated returns close to the S&P was taking on way too much risk, and should probably be fired.

Blame the ever-expanding financial media or the increased awareness among investors, but there is no getting around the reality that clients have become programmed to dwell on the performance of a few high-profile benchmarks.

“Sure, the S&P 500 had a good 2014, and if you had all or most of your money invested in [that index], you did, too,” said Ed Butowsky, managing partner at Chapwood Capital Investment Management. “But what were you doing with most of your money in a single index?”

Most years, a globally diversified portfolio that spans multiple asset classes can hold its own relative to something like the S&P. But when a year like 2014 happens and the S&P essentially laps the field, financial advisers who have done their job might suddenly feel as if they have to make excuses for doing the right thing.

“Periods like 2014 are why people think they should just go buy the index,” said David Schneider, founder of Schneider Wealth Strategies. “Investors tend to fixate on the S&P because it’s the most famous index out there, and when it outperforms everything, it just makes the case for passive investing for all the wrong reasons,” he added. “People think they can just get rid of foreign stocks.”

While long-dated U.S. Treasuries emerged as a surprise outperformer last year with a 27.4% gain, most risk assets around the world didn’t even show up for the game.

Developed markets, as represented by the MSCI EAFE Index, fell 4.9% last year, and the MSCI Emerging Markets Index fell 2.2%.

SMALL CAP LAGGED

Midsize companies, as tracked by the Russell Midcap Index, generated a 13.2% gain last year and almost kept pace with the larger companies that make up the S&P 500. But the 4.9% gain by the Russell 2000 small-cap index shows that smaller companies were not really participating.

With everything packaged into a diversified portfolio, it would have been near impossible to generate anything eye-popping last year.

Applying allocations based on Morningstar Inc.’s five main target risk indexes, ranging from conservative to aggressive, the best performance last year would have been 5.23%, which includes a 1.51% decline during the second half of the year.

To get that full-year return would have required a 91% allocation to stocks, divided between 59% in U.S. stocks and 32% in foreign stocks.

That portfolio, Morningstar’s most aggressive, also included 4% in domestic bonds, 1% in foreign bonds and 4% in commodities, as an inflation hedge.

On the other end of the spectrum, the most conservative Morningstar portfolio had just an 18% allocation to stocks, including 13% domestic and 5% foreign. The 61% fixed-income weighting had 50.5% in domestic bonds and 10.5% in foreign bonds. The 10.5% inflation hedge included 2% in commodities and 8.5% in Treasury inflation-protected securities.

HISTORY LESSON

That portfolio gained just 3.38% last year but fell 0.73% during the second half of the year. “ History has taught us that at the beginnning of any 12-month period, stocks have as good a chance of gaining 44% as they do of losing 25%.” Mr. Butowsky said.

The onus is always on advisers to turn years like 2014 into teachable moments with clients, and a lot of advisers are doing exactly that.

Thomas Balcom, founder of 1650 Wealth Management, took a proactive approach in December by addressing the issue in his holiday greeting card message, which focused on “not putting all your eggs in one basket.”

“My clients were definitely surprised they weren’t up as much as the S&P, because everyone uses the S&P as their personal benchmark,” he said. “But we had things like commodity exposure and international stocks that were both down last year, and that doesn’t help when clients see the S&P reaching record highs.”

Veteran advisors recognize 2014 as a truly unique year for the global financial markets.

In 2013, for example, when the S&P gained 32.4%, developed international stocks gained 22.8%. But domestically, the S&P was outpaced by both mid- and small-cap indexes, meaning a diversified portfolio was riding on more than just the S&P’s positive numbers.

Prior to 2013, the S&P had outperformed international developed- and emerging-market stocks on only three other occasions since 2000. Domestically, the S&P has outperformed midcap and small-cap stocks only one other time since 2000, in 2011, with a 2.1% gain.

“It’s tough dealing with clients, because the S&P is the benchmark you can turn on the TV and hear about, and everyone wants to know why they aren’t experiencing the same returns as the S&P.” says Michael Baker, a partner at Vertex Capital Advisors.

“The S&P 500 really represents one asset class – large cap stocks,” he added. “And most investors only have about 15% allocated to large-cap stocks.”

7 Social Security Mistakes to Avoid

SSA-image-2My Comments: Social Security payments are a critical financial component of many lives these days. When it began in 1935, there was much gnashing of teeth among the political parties since it represented a recognition by the government that some people needed help. This was in a world recovering from the Great Depression and watching the developing threat of Communism in the Soviet Union.

Today, many millions of us pay into the system monthly and many millions of us receive a check every month. Some of us, like a client of mine, has a permanent disability that he was born with and qualifies for help with living expenses. He has never been able to earn a living and few surviving family members to help him get by from day to day.

I readily admit to an element of socialism in this process. But I live in a world of rules imposed on us by society where society has deemed it to be in the best interest of the majority that those rules exist. Like making us all drive on one side of the road instead of at random. Think about that for a minute if you choose to believe that society should have no role to play in our lives or that socialism is inherently evil.

Okay, enough political chatter. Here’s useful information about claiming benefits from the SSA.

by John F. Wasik / FEB 17, 2015

Most clients get lost trying to navigate Social Security on their own. There are about 8,000 strategies available for couples and more than 2,700 separate rules on benefits, according to the Social Security Administration. Yet most couples don’t explore all the possibilities; as a result, they end up leaving an estimated $100,000 in benefits on the table, reports Financial Engines, an online money management firm.

For many advisors, talking to clients about Social Security often means having a brief conversation that ends with the traditional advice of “wait as long as you can until you file.” But Social Security, with its myriad filing-maximization strategies, should play a much larger role in a comprehensive planning discussion.

Consider these basic questions: How do you ensure a nonworking spouse reaps the highest possible payment? Should the higher earner wait until age 70 to receive payments? What’s the advantage of taking benefits at age 62? Should clients take benefits earlier if they are in poor health? How can divorcees claim a benefit based on an ex-spouse’s earnings?

Clearly, there are several right and wrong routes to maximizing Social Security benefits. Here are some of the most common mistakes and how advisors can address them.

1. Not planning for opportunity cost
What’s the cost of waiting to take Social Security? How will withdrawals from retirement funds impact clients’ portfolios?

Advisors need to understand how a Social Security claiming strategy will affect a client’s net worth, notes Ben Hockema, a CFP with Deerfield Financial Advisors in Park Ridge, Ill. “If you wait to take Social Security, that will mean withdrawing more money from a portfolio,” he says. “The Social Security decision involves trade-offs.”

Hockema runs Excel spreadsheets in conjunction with specialized Social Security software to show clients what opportunity costs look like in terms of lower portfolio values, displaying return assumptions with graphs.

Many financial advisors point out that the answer is not always to wait until 70 to take Social Security. You have to take a broader view.

2. Failure to consider family history
What are the client’s family circumstances? What do they expect in terms of life expectancy? Have other relatives been long-lived?

Even if answers are imprecise, the discussions can provide valuable insights into how to plan Social Security claiming, say advisors who are trained in these strategies. But it’s the advisor’s role to tease out that information, notes CFP Barry Kaplan, chief investment officer with Cambridge Wealth Counsel in Atlanta. “People often have no clue” about the best Social Security claiming strategies, Kaplan says. “It’s complicated.”

3. Not integrating tax planning

One key question to consider: What are the tax implications of a particular strategy, given that working clients will be taxed on Social Security payments?

Here’s how Social Security benefits taxation works: If your clients are married and filing jointly, and their income is between $32,000 and $44,000, then they may have to pay tax on half of their benefits. Above $44,000, up to 85% of the benefits can be taxed.

For those filing single returns, the range is from $25,000 to $34,000 for the 50% tax and 85% above $34,000. Be sure you can advise your clients on how to manage their income alongside their Social Security benefits.

4. Failing to ask about ex-spouses
Be sure to ask your clients about their marital history, understand what they qualify for and analyze how it will impact their cash flow. Was the client married long enough to qualify for spousal benefits? How much was the client’s ex making? Be sure to walk through different options with clients.

Kaplan offers the example of a 68-year-old woman who was twice divorced: “She was still working, and it had been 20 years since her last marriage,” Kaplan says. “I then discovered … a former spouse’s income that netted my client an immediate $6,216 — six months in arrears — and would result in an additional $1,036 per month until age 70, for a total [of] $30,000 in additional benefits.”

Kaplan’s divorced client was able to claim benefits based on her first spouse’s earnings, which boosted her monthly payment considerably.

5. Overlooking spousal options
A key question to ask: Does the “file and suspend” strategy make sense in your clients’ situation? In this case, the higher-earning spouse can file for benefits, then immediately suspend them, allowing the monthly benefit to continue to grow even if the other partner receives the spousal benefit.

The result: The lower-earning spouse can collect benefits while the higher-earning spouse waits until 70 to collect the highest possible payment.

6. Not taking advantage of new tools
Although specialized software packages can generate a range of benefit scenarios, only 13% of planners use subscription-based tools designed for Social Security maximization. (Most planners do have some comprehensive planning tools available, but they may not integrate Social Security scenarios.)

Most planners rely upon the free and often confusing calculators from the Social Security Administration, along with online calculators and general planning software, according to a survey by Practical Perspectives and GDC Research.

That’s despite the fact that only a quarter of planners “are comfortable enough to plan and recommend Social Security strategies to clients,” the survey noted.
A detailed conversation about Social Security may be even less likely to occur with high-net-worth clients, according to the survey.

When you approach Social Security with your clients, consider that there are multiple nuances within the system’s rules that few practitioners have studied, and these could result in higher payments. You may need some of the sophisticated tools now available.

7. Dismissing it altogether
There’s another reason clients — and often planners — don’t drill down into Social Security strategies: They don’t think it will be available in coming decades.

But don’t write it off altogether. The truth is that Social Security’s trust fund, the money held in reserve to pay for future retirees, is adequate to pay full benefits until 2033. If Congress does nothing to address the funding shortfall, the government will pay three-quarters of benefits until 2088.

And Social Security is one of the most successful and popular government programs in history, so it’s difficult to bet against its long-term survival.

David Blain, president of BlueSky Wealth Advisors in New Bern, N.C., suggests that, in addition to carefully reviewing benefit statements and earnings records, advisors should explore other aspects of Social Security, including spousal, death and survivor benefits.

“You need to take it seriously,” Blain says about integrating Social Security into a plan. “Clients may not understand it and think it’s not going to be there for them.”

John F. Wasik is the author of 14 books, including Keynes’s Way to Wealth. He is also a contributor to The New York Times and Morningstar.com.

The First Sign of an Impending Crash

080519_USEconomy1My Comments: Another in a littany of warnings about pending doom. It gets a little tiresome,doesn’t it? Especially when there are others who swear the signs are there for continued gains. My gut tells me this guy is probably right.

By Jeff Clark Thursday, February 12, 2015

Investors have plenty of reasons to be afraid right now…

There’s the rapidly falling price of oil… The big decline in the value of global currencies… The Russian military action in the Ukraine… And the possibility of the European Union falling apart.

It’s unsurprising that many investors are looking for the stock market to crash. And – as I’ll show you today – we’ve seen the first big warning sign.

But here’s the thing…

Stock markets don’t usually crash when everyone is looking for it to happen. And right now, there are far too many people calling for a crash…

Once we get through this current period of short-term weakness that I warned about on Tuesday, the market is likely to make another attempt to rally to new all-time highs.

This will suck investors in from the sidelines… And get folks to stop worrying.

Then, later this year, when nobody is looking for it… the market can crash.

But for now, just to be on the safe side… Keep an eye on the 10-year U.S. Treasury note yield…

The 10-year Treasury note yield bottomed on January 30 at 1.65%. Today, it’s at 2%. That’s a 35-basis-point spike – a jump of 21% – in less than two weeks.

And it’s the first sign of an impending stock market crash.

As I explained last September, the 10-year Treasury note yield has ALWAYS spiked higher prior to an important top in the stock market.

For example, the 10-year yield was just 4.5% in January 1999. One year later, it was 6.75% – a spike of 50%. The dot-com bubble popped two months later.

In 2007, rates bottomed in March at 4.5%. By July, they had risen to 5.5% – a 22% increase. The stock market peaked in September.

Let’s be clear… not every spike in Treasury rates leads to an important top in the stock market. But there has always been a sharp spike in rates a few months before the top.

It’s probably still too early to be concerned about a stock market crash… But keep an eye on the 10-year Treasury note yield. If it continues to rise over the next few months, then you can start to worry.

Good investing,

Jeff Clark